- A higher bar: A more volatile macroeconomic regime, alongside relatively high rates, may mean investors need to demand greater compensation for taking on equity risk; they can meet this higher performance bar by getting precise about targeted opportunities.
- Artificial intelligence (AI): From concept to commercialization: The AI trade is just beginning, with enterprise AI adoption, accelerated computing, and cutting-edge hardware set to take center stage in 2024.
- A new era for medical innovation: Attractive valuations, the potential for breakthroughs in neuroscience and AI-driven healthcare could present an attractive entry point.
- The rewiring of globalization: Heightened geopolitical fragmentation is driving a doubling down on supply chain reorientation that is creating geographic winners and losers in emerging markets.
2024 Thematic Outlook: Three themes to get investors off the sidelines
Nov 15, 2023
KEY TAKEAWAYS
A HIGHER BAR
In today’s era of heightened market volatility and “short-termism,” long-term structural trends with near-term catalysts could prove a defining edge in generating outperformance. Macroeconomic uncertainty has triggered sentiment swings, resulting in rotations along factor, sector, and country lines.
We focus our 2024 Thematic Outlook on: the growth of AI; medical innovations being overlooked given low current revenue; and countries – such as Mexico and India – that could benefit from the rewiring of globalization.
ARTIFICIAL INTELLIGENCE: FROM CONCEPT TO COMMERCIALIZATION
2023 was the year AI exploded onto the scene, but we believe AI adoption is just beginning. In the coming year, enterprise AI adoption and product integration will leap forward; multi-modal AI will move closer to reality; and hardware opportunities will grow to expand beyond graphics processing units (GPUs). Cost savings is a major driver of corporate AI implementation strategies.
A NEW ERA FOR MEDICAL INNOVATION
Recent breakthroughs in treatments for Alzheimer's, coupled with AI-driven healthcare and medical tech advancements, could be poised to revolutionize medicine. Investors could be missing out on neuroscience and biotech opportunities by overemphasizing current revenue and ignoring the one-two punch of innovation alongside compelling valuations. The greatest surge of new retirees in the nation’s history is fast approaching, and the AI healthcare market, worth $9 billion in 2022, is forecasted to skyrocket to $188 billion in 2031.1
THE REWIRING OF GLOBALIZATION
In 2016, BlackRock identified the trends transforming the world – they spanned technology, demographics, climate and urbanization. In 2023, we formally added another that we have been closely monitoring and seeing build for some time: geopolitical fragmentation and economic competition. Simply put, globalization – a foundational driver of markets for almost 80 years – is shifting meaningfully:
History’s next chapter may not be as global as the last
History of globalization, 1870-2020
Source: BlackRock Investment Institute and U.S. Bureau of Economic Analysis, with data from Haver Analytics, November 2022. The chart represents globalization as the sum of world exports plus imports, divided by world GDP.
Chart description: The link chart shows the Trade Openness Index from 1870-2020, to illustrate how globalization has evolved over time. The blue shaded area highlights the period between the first and second world wars when trade integration fell materially. The blue circled region highlights the most recent period of available data from 2015-2020, during which globalization has plateaued.
For more insights and to read about our rationale for the recommendations, download the full 2024 Thematic Outlook.
Video 02:25
With elevated short-term rates and heightened equity market volatility, long-term structural themes may be a defining edge in seeking returns.
But, an uncertain backdrop does not mean a dearth of opportunity. We’ve seen whole sectors moving together, meaning the most exciting growth themes within them may be discounted at the same rate as less-innovative areas. We see specific themes where divergence could be rewarded. Our 2024 thematic outlook focuses on three specific areas where we see potential opportunities for growth in the next 12 months, and beyond:
The first is, perhaps unsurprisingly, artificial intelligence as we move from concept to commercializing this groundbreaking technology. In fact, 70% of executives intend to increase AI resourcing in 2024.[1] We expect enterprise AI adoption, accelerated computing, and cutting-edge hardware to take center stage next year. Investing in the AI value chain broadly and semiconductors specifically can help investors get targeted exposure to AI – including both enablers, like semiconductor companies, and developers of the technology.
The second: a new era for medical innovation is here. US demographics are at an inflection point, as the proportion of Americans aged 65 and older is expected to exceed children under 15 for the first time in 2024.[2] And yet, valuations in innovative healthcare areas, such as neuroscience and obesity, are at reasonable levels. Given this, investors may want to consider investments focused on neuroscience and biotech.
And third, we highlight globalization rewired. Supply chain reorientation is creating potential opportunity in specific areas of emerging markets with countries such as Mexico and India looking to be key beneficiaries. As a result, investors should consider thinking strategically about their emerging market allocations and may want to target single country funds and think of China as distinct from other emerging markets.
For more details on our 2024 thematic outlook, visit iShares.com.
[1] Slalom, “AI’s most powerful prompt,” 10/10/23.
[2] Inter Press Service News Agency, “The Historic Reversal of Populations,” 08/08/2016.
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